BEIJING, Aug 13 Tencent Holdings Ltd,
China's biggest listed tech firm, posted its second quarter of
year-on-year profit gain of more than 50 percent as smartphone
gaming revenue continued to grow at a breakneck pace.

Net income rose 59 percent to 5.84 billion yuan ($949
million) in the three months to end-June compared with a year
earlier, Tencent said on Wednesday. That beats a mean estimate
of 5.73 billion yuan based on a Thomson Reuters SmartEstimate
poll of 10 analysts.

Tencent, with a market cap of more than $160 billion, has
built its success on WeChat, known as Weixin in China. Through
the mobile messaging app, the arch-rival of Chinese e-commerce
giant Alibaba Group Holding Ltd has been raking in
money since it introduced smartphone games in late 2013.

The Shenzhen-based company is also monetising games on its
other large mobile social network, Mobile QQ.

"Revenue growth in the online game business mainly reflected
contributions from smartphone games integrated with Mobile QQ
and Weixin, as well as growth in PC client games," Tencent said
in its earnings release.

Overall revenue climbed 37 percent to 19.75 billion yuan in
the second quarter. In the first quarter, Tencent's net profit
rose 60 percent to a record 6.46 billion yuan.

FLAT MOBILE GAMING GROWTH

Revenue from online games made up 11.08 billion yuan, or 56
percent, of total revenue in the second quarter. That was up 46
percent from a year earlier.

The surge in this segment primarily reflected the revenue
contribution of about 3 billion yuan from smartphone games
integrated with Mobile QQ and Weixin, up from around 1.8 billion
yuan reported in the first quarter.

But the company might see mobile game revenue remain stable
in the second half of 2014, said James Mitchell, Tencent's chief
strategy officer, on a conference call on Wednesday.

The slowdown in revenue could come as the company focuses on
improving user experience and driving more traffic and providing
more support to third party games, Mitchell said.

Average revenue per user for mobile games will be 100-110
yuan per quarter, the company said.

CHINA'S BIGGEST MOBILE APP

Tencent has spent more than $2 billion on building
capabilities and services such as e-commerce, real estate and
digital mapping into WeChat since the beginning of 2014.

It plans to make WeChat into a digital Swiss Army knife that
can be used for needs as diverse as chatting, online shopping,
paying for goods and getting deals on nearby restaurants.

This includes a 17.6 percent stake in JD.com Inc,
Alibaba's biggest challenger to its e-commerce business in
China, whose online retail service is bolstered by an in-house
logistics network with over 24,000 delivery workers.

"Although the near-term driver will still mainly be the
WeChat/QQ games monetisation ramp-ups, we see another year of
robust online ad revenue growth in 2014 as well as for 2015
given the improved traction on the mobile news app and Tencent
video," Alicia Yap, an analyst for Barclays in Hong Kong, said.

But the company's flagship messaging app has been facing
strong competition overseas, executives said on Wednesday's
earnings call, particularly from WhatsApp, which Facebook Inc
agreed to buy in February for $19 billion.

REGULATIONS

Executives brushed off the financial impact of new
regulations in China that restrict the spread of political news
via instant messaging tools like WeChat.

The impact is relatively minor, partly because the new rules
are aimed at special accounts that can send out single messages
to much larger numbers of followers than individual users and
are commonly used by media organisations and companies.

Rules like requiring real name registration would also have
little effect, Tencent said, as people must sign up with their
mobile telephone numbers anyway. China's government stipulates
that mobile phones are supposed to be registered to users' real
names.

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